Do all companies pay dividends to shareholders?

Question

If not, what are the reasons why you should buy stocks from companies that don't pay dividends?

Answer 1

Not all companies are currently paying dividends to stockholders. This is perfectly natural. In the case of a start-up company, we often see the company skip dividend payments to reinvest all profits for growth. Investors are cool with this so long as the company's growth leads to large dividends in the future, once the company starts paying them. However, any stock whose price is above zero reflects the fact that somebody thinks this company will eventually pay dividends at some future time.

Ethical companies will eventually pay dividends. No company in their right mind would issue stocks and then say to themselves, "Foolish shareholders! We will never pay them dividends, even to our grave." Eventually shareholders would take notice and a backlash of negative publicity would engulf that company. Not to mention, the board of directors (who are shareholder's liaisons) would take action against the CEOs. Also, that company would never be able to issue any new stocks to raise money. In fact, if a company announced that it would never issue dividends, the price of that stock would instantaneously drop to zero.

One exception to this is the stock buy-back. Sometimes companies will use their profits to buy back outstanding stocks at a premium. This is in lieu of paying dividends. Fine by me. But this is fundamentally no different than a dividend. The company is still giving me income which comes from their profits. Dividends are income spaced out over many years, while a stock buy-back gives me the income as a lump sum. Think of a stock buy-back as the company paying those future discounted dividends all at once to you.

CEOs run the business of the company while the board of directors oversees their actions and acts on behalf of the stockholders. The board may consist of people outside the company, to ensure a nonbiased party is involved. The board declares dividends and how much they pay. Typically, a board of directors will allow a company to earn profits for several years before declaring or increasing dividends. Likewise, they are reluctant to decrease dividends, even if the company has one or two bad years. They know that an abrupt decrease in dividends will shake stockholder's confidence, so the board is conservative with their changes.

How does the board of directors decide what to do with profits? Simple. A good director asks the question, "Who would earn a better return with the money - the stockholders or the company?" The director will reinvest earnings back into the company if she thinks the company can grow and make even more profit down the road. If the director, though, feels the company cannot grow fast enough to give shareholders a competitive rate, she will use profits to pay dividends instead. This returns equity back to the shareholders so that they can invest the money in something else. Many older and established companies pay generous dividends because - although the companies are strong - their growth has reached a plateau.

Answer 2

Ok, I've done enough home work this week.!! A company has basically two types of shareholder, prefernce and ordinary. Preference get a dividend every year at a set a rate and it may be deferred, but any non-payment has to go as a creditor (debt to the comapany) and corrected. Ordinary shareholders are not automatically given dividends. It depends on the profits of the company, and what they receive is variable. The only other loosley termed holder is a debenture holder who get fixed rate no matter what. Preference shareholders after debenture holders are paid before ordinary shareholders.

Answer 3

Some do some don't. If they do not they then take those profits and reinvest them into the company making it more profitable. Dividends are an optional thing.

Some companies pride themselves on saying they have been paying out dividends for so many years, but the actual stock may not be worth as much as a comperable company who didn't payout.

Investing in Stocks is a complicated issue, and even after a year of accounting classes, I still don't understand it that well.

Answer 4

This Site Might Help You.

RE:
Do all companies pay dividends to shareholders?
If not, what are the reasons why you should buy stocks from companies that don't pay dividends?

Answer 5

Many companies do not pay dividends. Some of the ones that do have such a small dividend that it isn't worth considering. (My opinion.)

Dividends should be a secondary consideration to stock selection. Your main goal should be to find stocks that you believe will go up in value. Otherwise the dividend only means you won't loose as much money.

Answer 6

Do All Stocks Pay Dividends

Answer 7

No, not all companies pay dividends, but that is not a reason to not buy them. Most, but not all, non-dividend paying companies are growth oriented and reinvest the money that they would pay in dividends back into the corporation to stimulate research and development and stay in the growth mode. This is what Microsoft did for the first 15 years of their life. Now that they are maturing, they are paying dividends to entice investors.

If your interested, here's a dividend screener where you can search for dividend growth stocks.

http://www.dividendinvestor.com/
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Answer 8

Many companies do not pay dividends as they are in the expansionist stage and are using income to promote internal growth. You would buy stocks in these companies in the expectation of future profits.Of course if a company has no prospects of expanding and does not pay dividends then you would not want to buy into them.

Answer 9

No. For example, Microsoft didn't for a long time, although they have now paid out a couple dividends.

You might buy the non-dividend stocks because you think the value of the stock itself will appreciate.

Answer 10

just because they dont pay dividends doesnt mean you shouldnt buy a stock. remember, stocks also can increase and decrease in value